Washington Catfight: CBO vs. OMB on Health-Care Reform

In response to the Congressional Budget Office's report that current health-care reform proposals were unlikely to solve the country's long-term budgetary problems, the Obama White House put forth a plan to reduce spending it hoped would prove to be a "game changer." The idea, not exactly a new one in health-policy circles, was to set up an independent commission—IMAC, the Independent Medicare Advisory Commission—made up of doctors and policy experts who would recommend changes in how Medicare would be administered and paid for. Over time, the theory went, this empowered, independent commission would yield significant savings that Congress, hamstrung by interest-group politics, has historically proven incapable of achieving.

Office of Management and Budget director Peter Orszag, who helped craft the IMAC plan for the White House, reported on his blog this weekend that the CBO has looked into the details and found that it "could lead to significant long-term savings in federal spending on health care." Finally, some good news for the administration, right?

Not so fast. Orszag's post gives the CBO report a positive spin that it doesn't seem to warrant. What the CBO actually said was far more nuanced than the basically happy summary Orszag gives. First of all, the savings in the 10-year window that the CBO typically scores would be negligible—only about $2 billion on a $1 trillion bill. And after that, while there would probably be some reduction in the rate of rise for health-care costs, it's quite possible that the savings would remain trivial. And to increase the chance that significant savings would be achieved, the IMAC plan would need to be modified substantially from its current form.

Does this sound like the "game-changer" the White House promised? See for yourself. The whole CBO letter is worth reading, but here are two of the key paragraphs. 

In particular, CBO reviewed draft legislation transmitted to the Congress by the Administration on July 17, 2009, titled the Independent Medicare Advisory Council Act of 2009. CBO estimates that enacting the proposal, as drafted, would yield savings of $2 billion over the 2010-2019 period (with all of the savings realized in fiscal years 2016 through 2019) if the proposal was added to H.R. 3200, the America's Affordable Health Choices Act of 2009, as introduced in the House of Representatives. This estimate represents the expected value of the 10-year savings from the proposal: In CBO's judgment, the probability is high that no savings would be realized, for reasons discussed below, but there is also a chance that substantial savings might be realized. Looking beyond the 10-year budget window, CBO expects that this proposal would generate larger but still modest savings on the same probabilistic basis.

 

…Expected savings from the IMAC proposal would grow after 2019, but many of the above points would still apply, reducing the likelihood of attaining large annual savings. The considerable uncertainty about the amount of savings that might occur within the first 10-year projection period would compound in future decades. Although it is possible that savings would grow significantly after 2019, CBO concludes that the probability of this outcome is low for the proposal as drafted, particularly because there is no fall-back mechanism to ensure some minimum level of spending cuts beyond those already included in H.R. 3200.

 

This is not good news for reform advocates, particularly those who, like Orszag, have been pushing the idea that reform will bring rising costs under control. And clearly, Orszag isn't happy, which is why he finished his post with a surprisingly blatant snub: "In providing a quantitative estimate of long-term effects without any analytical basis for doing so, CBO seems to have overstepped." Sounds tame, but this is about as close to a catfight as you'll ever see between number-crunching Washington bureaucrats.

But what, I wonder, did Orszag expect? Scoring legislation over a ten-year period is already dicey. Projecting multiple decades into the future is almost impossible, especially for an agency as cautious and grounded as the CBO. And Orszag, as the CBO's last head, should know this. Meanwhile, he's essentially admitted that no one really knows what will be necessary to tamp down on rising costs. Neither politically motivated positive spin nor inter-bureuacratic sniping will change that. 

Last week, I wrote about the problem of cost-cutting in health care, and Jacob Sullum argued that health-care reform isn't worth the cost.  Watch Reason's Shikha Dalmia talk Medicare on Fox News below: